XYZ Corporation reported taxable income of $91,500 for the current year.It has provided the following information for use in computing earnings and profits: Dividends received (from 45% corporation) $10,000
Interest from tax-exempt municipal bonds 2,000
Depreciation, using accelerated cost recovery percentages under MACRS (straight line, using ADS would have been $12,000) 15,000
Long-term capital gain 8,000
The corporation's current earnings and profits before considering taxes is

Question

Quizplus · Accepted Answer

To compute current earnings and profits, start with taxable income and adjust for items that affect earnings and profits but not taxable income. Add back the dividends received ($10,000), interest from tax-exempt bonds ($2,000), and the difference between straight-line and accelerated depreciation ($3,000). This results in $91,500 + $10,000 + $2,000 + $3,000 = $106,500. However, the long-term capital gain is already included in taxable income, so no adjustment is needed for it.

XYZ Corporation Reported Taxable Income of $91,500 for the Current